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. Last Updated: 07/27/2016

Regions to Get Loans For Back Wages

Russia's federal government will lend funds to cash-strapped regional authorities as part of its battle to pay billions of dollars in back wages by the end of the year, a senior Finance Ministry official said Friday.

First Deputy Finance Minister Alexei Kudrin said at a news conference that regional governments owe the lion's share of government-sector wage arrears -- a whopping 25.6 trillion rubles ($4.4 billion) compared with federal government debts of 7.7 trillion rubles, which include military wage arrears.

Government officials have in the past cited different figures.

"We have a clear understanding of how to resolve major problems concerning the payment of wage arrears. We also have the necessary source of revenues," Kudrin said.

A web of nonpayments in the economy has caused millions of workers across Russia to go months without pay. In a bold move aimed at stamping out social unrest, President Boris Yeltsin earlier this month ordered that all debts to military personnel be paid by Sept. 1 and all public sector wage arrears be cleared by the end of the year.

Under a presidential decree signed July 8, the federal government will determine which regional authorities need help paying off wage arrears and will lend them 50 percent of their overall debts to public sector workers.

The loans, which will come due 1998, are to be channeled only through the federal treasury system and put into separate accounts, according to a government press release.

The Finance Ministry, in an apparent attempt to attack the roots of the nonpayments problem, will bypass commercial banks that have been accused of delaying funds and force regional governments to account for their spending.

"We have to take into account how rationally the regions use their revenues because very often they divert the money intended for the payment of wages for other purposes," Kudrin said. "If they want us to help them, they have to account for how they use their funds."

The government, which has already moved to slash spending this year, will draw up a regional lending program by Aug. 8, Kudrin said. He declined to say which regions will get federal help or how much central authorities will fork over to the local authorities.

Kudrin did say, however, that Moscow and St. Petersburg would probably cover their own debts, while the Primorye region in Russia's financially troubled Far East would likely require outside help.

The Finance Ministry is working on a plan to raise additional funds to wipe away all public sector wage arrears, Kudrin said, noting in particular that Yeltsin had authorized the government to draw up a list of additional state property to be auctioned off this year.

Kudrin did not provide further details.

An ambitious privatization program already is under way for 1997, including upcoming sales of major state stakes in telephone holding company Svyazinvest and metals giant Norilsk Nickel.

Kudrin indicated the government would not borrow on international markets to raise extra cash.

"Our borrowing program will not exceed planned targets," he said, adding that the government intends to continue to reduce yields on government securities.

Under the 1997 budget, the government cannot borrow more than $3.4 billion on international markets. Two Eurobond placements this year have already raised about $3.2 billion.

Kudrin said tax revenues have been steadily improving since the beginning of the year, helped in part by energy monopoly Gazprom paying off 14.5 trillion rubles in debts in June. He said national power utility Unified Energy System would help keep revenues up in the second half of the year by paying back taxes totalling 5 trillion rubles ($860 million) after it issues a convertible bond this fall.